Some Supply Chain Lessons Can Go a Long Way towards Success

Once again, Apple is doing something the rest of the world should be paying attention to. And this time it's not about the latest handheld wireless gadget or its unrivaled innovation strategy. It's about the company's approach to managing the global supply chain—even when things go wrong.

In case you haven't been following the story, here's a brief summary. Steven Jobs' replacement as Apple's chief executive, Timothy Cook, has been visiting overseas sites where Apple products are made (I'll come back to the importance of this action later on). In late March, he stopped at a site in Zhengzhou, China, that is run by Foxconn—a multinational electronics manufacturer headquartered in Taiwan. Around the same time, the Fair Labor Association (FLA) published the results of a month-long investigation into Foxconn, including three of its China-based facilities which manufacture Apple products (Guanlan, Longhua, and Chengdu). The independent audit, agreed to by Apple after it joined FLA in January, cited 43 violations of Chinese laws and regulations, including communication gaps, excessive working hours, and dangerous conditions (1). Foxconn has been under fire for some time, including being tied to employee suicides as reported in various media outlets, including the New York Times (2). Foxconn and Apple have since agreed to improve conditions.

While adherence to labor laws is a crucial aspect of managing any facility, this story has additional lessons to be learned. Supply-chain management and security have been hot topics of conversation among the pharmaceutical industry for the past several years. The increase of counterfeiting, economically motivated adulteration, and globalization throughout the pharma industry—much like that of the electronics or any other major industry—only adds to supply-chain complexity. And here is where due diligence comes into play.

Companies must visit their global sites. According to the Times article mentioned above, two Apple employees pointed out that Jobs never visited the company's factories in China. It seems that Cook, in his new role, is aiming to change that practice by taking a first-hand look inside the facilities that are manufacturing Apple's products. And because he, like most chief executives, cannot spend every day visiting and auditing sites, he's asking a third party to help (i.e., FLA). The pharma industry has similar options through third-party auditing organizations and consortiums. No matter the time or cost, knowing what's going on inside your facilities is always going to be worth the effort.

Second, companies need to keep their communication lines open. In one section of the FLA report about Foxconn, the association notes specifically that "communication is a two-way process…. The more workers participate in those processes, the more they are accepted, trusted and effective" (1). Some of Foxconn's problems are reportedly tied to top-down only communication. How many times have you heard someone in industry say that the Quality team doesn't communicate with the Development team, or that Senior Management doesn't communicate with the Technicians, and so on. Listening to employees—no matter their department—can only lead to improvement at all levels.

Third, companies need to be transparent. Cook seems to be taking this seriously. A January 2012 Apple report included for the first time the names of companies that supply Apple with parts and services, something it had previously declined to do (3). Apple's site also notes that it has audited every "final assembly factory in its supply chain each year since 2006" (4). The key phrase here is "final assembly." We know from recent unfortunate events, that the final manufacturer, distributor, or assembler is not necessarily where problems can occur. Quality must be sewn into and confirmed throughout every point in a product's supply chain. Regulators have enforced this message repeatedly.

I believe these points are must-do's to help secure the industry's product supply chain. A statement by Apple to the Times noted, "Our team has been working for years to … make Apple's supply chain a model for the industry.." (5). Clearly, the company still has some work to do—and so does pharma. But I think we're headed in the right direction.